The repercussions of the Pennsylvania Commonwealth Court ruling in Online Merchants Guild v. Hassell mean out-of-state businesses selling via FBA would be wise to review their in-state activities and filing position.
The Pennsylvania Commonwealth Court held in Online Merchants Guild v. Hassell that the Pennsylvania Department of Revenue did not establish that out-of-state sellers using Amazon’s Fulfillment by Amazon (FBA) program had sufficient contacts with the state to require the sellers to collect and remit state sales tax or pay personal income tax. It is a case with a long history.
In 2012, Amazon and the Pennsylvania Depart of Revenue entered into an agreement whereby Amazon would voluntarily collect and remit Pennsylvania sales taxes on its internet sales, but FBA sales were excluded from that agreement. In 2018, Amazon entered into a second agreement with the DOR whereby it agreed to collect and remit sales tax on FBA sales. However, that meant that FBA sellers remained liable for pre-2018 FBA sales. The state started sending nexus questionnaires to potential taxpayers indicating that they “may have” a physical presence in the state and thus a sales tax and personal income tax (PIT) responsibility.
As reported in Tax Notes, however, the court ruled September 9 that the storage of merchandise by Amazon in Amazon warehouses in the state was not enough to subject the sellers to Pennsylvania’s sales tax or PIT, noting that the seller has no control over the merchandise once it is received by Amazon and has no idea whether the goods will be purchased by a Pennsylvania customer. The court also concluded that the DOR could not use its investigative powers against entities or records located outside Pennsylvania.
Out-of-state businesses selling via FBA should review their in-state activities and filing position in light of this recent decision. Furthermore, out of state businesses who receive any nexus questionnaires from the state should consider the conclusion of this decision in their responses.
Lastly, the opinion itself is focused on personal income tax but makes no distinction between business and personal income tax and talks about businesses in general. This means the opinion likely extends to all income tax, personal and business. Even though the decision does not explicitly state this, the matters addressed in the opinion leave open the interpretation that all income tax is covered. Contact your TaxOps Advisor with additional questions.